Between a rock and a hard place: Africa struggles to distance itself from its colonial past
Governments using resource nationalism to keep mining companies in check could be doing their own economies a disservice
Sitting in a bank of small countries on the west coast of Africa, Sierra Leone is rich with natural resources. The country is among the world's top producers of diamonds and rutile, a mineral used in everything from ceramics and titanium to plastic. It also boasts a plentiful supply of iron ore and bauxite, a clay-like substance used in the chemical and steel industries. Indeed, minerals represented a staggering 91 per cent of Sierra Leone’s total exports in 2016.
Yet the country’s mineral wealth has been anything but a boon to the impoverished nation. During the country’s 11-year civil war, which ended in 2002, and indeed ever since, it is corrupt officials and private companies that have prospered from Sierra Leone’s riches. Addressing the long-standing injustice in a rousing speech upon taking office in July, mining minister Foday Rado Yokie said his country and its people had “suffered for far too long”. Authorities went on to impose a ban on exports from the Marampa mine of SL Mining, a subsidiary of US-based metals company Gerald Group, claiming it had failed to pay royalties – allegations Sl Mining denies. Three months later, Mr Yokie’s department cancelled the company’s licence to mine the one billion tonnes of iron ore in Marampa “with immediate effect”. Given that it acquired 25-year licences in 2017, it is now demanding more than $500 million (Dh1.8 billion) in compensation – amounting to about one-seventh of Sierra Leone’s total GDP.
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The government in Freetown is just the latest in Africa to resort to resource nationalism, reasserting its control over its country’s natural resources. Sierra Leone is one of a number of countries across the continent increasingly seeking greater control over its resource wealth. Who would not argue that the main beneficiaries of a nation’s gold, iron ore, cobalt and diamonds should be its own citizens? And who would dispute that western governments and companies have historically plucked riches from the soil of the Democratic Republic of the Congo and Tanzania, among others, leaving their citizens no better off? The idea of correcting past sins might be intoxicating but it must come with a dose of realism. Arbitrarily cancelling contracts erodes faith in a country’s institutions, in its checks and balances and spooks investors. Governments must instead walk a fine line between providing for their people and reclaiming their territory.
The practice of resource nationalism works as follows. Countries teeming with valuable resources, but lacking the money and technology to extract them, entice international investors. When the foreign company is fully engaged and the country regains its bargaining power, the government demands higher returns or cancel contracts.
It is particularly attractive when commodity prices rise, as they have in Sierra Leone over the past year. Before it scrapped SL Mining’s licence, the price of iron ore – used to make steel – climbed to $125 (Dh459) a tonne, a five-year high.
A March report from global risk consultancy firm Verisk Maplecroft found that 30 countries globally (several of them in Latin America) have witnessed a rise in resource nationalism since 2016. Among those it classes as “extreme risk” are Tanzania, the DRC, Zimbabwe and Swaziland.
Last year the DRC overhauled its previously lax mining code, hiking fees and royalties and introducing a new 50 per cent tax on “super profits”. One of the world’s most-looted nations historically, the DRC produces 60 per cent of the world’s cobalt – an indispensable component of smartphones and electric car batteries. Its new regulations forced the closure in August of the Mutanda copper and cobalt mine, the largest single source of cobalt in the world, operated by Swiss firm Glencore.
The idea of correcting past sins might be intoxicating but it must come with a dose of realism
And upon winning power in 2015, Tanzanian President John Magufuli stoked populist sentiment by slapping an export ban on unprocessed copper and gold, which stopped London-based Acacia Mining from exporting its commodities for three years. A new mining code introduced last year forced companies to hand at least 16 per cent of their assets to the state while authorities began seizing assets from those it said owed royalties. In August, diamonds worth $15 million were seized from the British mining firm Petra amid claims it had undervalued their worth. Mr Magufuli’s government also took measures to prohibit mining companies from suing the state in international courts but Tanzania’s judiciary, according to Transparency International, is “known to suffer from underfunding, corruption, nepotism, a lack of information and inefficiency”.
Meanwhile Zambia’s government handed Canadian miner First Quantum a tax bill of $7.9 billion (Dh29bn) last year. Earlier this year, it attempted to liquidate Konkola Copper Mines, a subsidiary of India’s Vedanta Resources.
This is not the kind of aggressive nationalisation seen in Africa and Latin America in the 1960s and 1970s. Instead, governments are using more nuanced strategies, deploying mining conduct codes and taxes, to exert greater control over corporations. But from the perspective of international investors, there is little difference.
The rationale for pursuing this action is understandable and not without merit, given the looming sense that African countries have not had their fair share of reaping the rewards. Colonial powers have plundered the continent for centuries, drawing borders to suit western capitals and enslaving local populations. One only need read Joseph Conrad’s semi-autobiographical Heart of Darkness, which describes a voyage up the Congo river in search of a British ivory trader, to understand the ways in which colonised populations were regarded as a commodity and a source of cheap labour.
Some argue that international corporations have now replaced colonial powers. And with commodity prices high, the need to redress that balance seems pressing. Resource nationalism also has plenty of political appeal. In Guinea, Cellou Dalein Diallo is hoping to replace authoritarian president Alpha Conde in elections next year, in part by promising an overhaul of the mining sector in the diamond, gold and bauxite-rich West African nation.
In reality, mining companies and African governments need one another – at least for now. Zambia had external debts of $10bn last year. The DRC’s government, following decades of civil war and authoritarianism, is desperately cash-strapped. So too is more peaceful Tanzania. Today international investment, be it from corporations or lenders such as the International Monetary Fund, is the best avenue for African nations to quickly access capital. Opening mines to the highest bidder is a necessary evil.
The suggestion that contracts signed with international companies, albeit by previous government administrations, will not be upheld – and can be cancelled unilaterally – sends a worrying signal. It implies an erosion of the rule of law. It does lasting damage to perceptions of the local business environment and jeopardises much-needed investment and jobs.
Combine the threat of contract cancellation with the threat of violence from armed groups that target mines and international investors might be deterred. Just last month, buses carrying employees from a gold mine in Burkina Faso, operated by Canadian company Semafo, came under attack from militants, leaving 37 dead and dozens injured.
If corporations pull out, the short-term political and economic gains generated by resource nationalism might end up looking insignificant next to the long-term economic harm it could cause.
Updated: December 5, 2019 11:04 AM